ALERT: Aggressive DOL Enforcement Emphasizes Need for Timely Deposit of Employees’ Retirement Plan Contributions
December 15, 2015
When employees earmark funds to be withheld from their paychecks for deposit into their employer’s retirement plan, that employer has a legal and regulatory responsibility to move the funds into the retirement plan within a specific timeframe. ERISA law and the US Department of Labor (DOL) specify the plan sponsor’s deadlines to do so – and employers should note that DOL is backing up its directives with enforcement as well. The need for timeliness in depositing the funds applies to both plan contributions and loan repayments.
What if I'm late paying?
Plan sponsors who don’t meet the DOL’s timeliness criteria could face both financial penalties and criminal charges, including embezzlement. Although every plan likely has the occasional unintentional delay, employers can and should correct and document missed payments to demonstrate their intent to comply as well as to help mitigate any resulting penalties if the delay is discovered.
According to the DOL, plan contributions and loan repayments must be paid to the plan “as soon as reasonably possible” following the date that it is withheld from employees’ pay. At the latest, the contribution must be paid by the 15th day of the month following the date that it would have otherwise been paid over to the employee. In recent years, the DOL has taken the position that rule is not applicable in most cases, and allows too much time; they believe most employers should be able to make plan payments in 5 to 7 days. (Small plans with fewer than 100 participants can use a 7th business day safe harbor provision.)
In a 2011 court case, an employer’s owners were found guilty of failing to contribute more than $100,000 of employee deferrals over several years. Despite the defendants’ argument that they did so to keep the company in business (the funds were used for general company expenses), the court sentenced them to two years of probation, a $20,000 fine, and 240 hours of community service. This is just one example of the actions the DOL will take to pursue cases where employers have failed in their fiduciary responsibility to contribute plan deferrals in a timely manner.
If you have any questions regarding your organization’s 401(k) plan, please contact Heather Smith, operations manager of Allen, Gibbs & Houlik’s employee benefits services group, using her contact information below.
Employee Benefit Services
Heather's prior experience includes banking and trust administration and extensive customer service training. She manages the Employee Benefit Services division and is responsible for all system operations and services. Heather also works on special projects and helps implement new internal procedures. Heather received her QKA certification and is a member of the American Society of Pension Professionals and Actuaries.
Information in this document has been obtained by Allen, Gibbs & Houlik, L.C. from sources believed to be reliable. However, AGH does not guarantee the accuracy nor completeness of any information. This communication does not and is not intended to provide legal, accounting or other professional advice or opinions on specific facts or matters, and accordingly, AGH assumes no liability whatsoever in connection with its use. Nothing in this communication can be used to avoid penalties that may be imposed by a governmental taxing authority or agency.